Merchant houses as providers of credit

Credit along the chain of production

Every stage of the putting-out system involved credit. The merchant who imported raw cotton from the Levant or raw silk from Italy paid for it months before the finished cloth could be sold, often through bills of exchange drawn on correspondents in Lyon, Genoa, Venice, Frankfurt or Amsterdam. He advanced the raw material to the Tüchler, who in turn advanced it to the spinners and weavers of his village. The home workers received their wages when they delivered. Their spinning wheels and looms, however, had been bought on credit, and bad years forced them to take advances against future work.¹ The goods moving through the system were thus at every point financed by someone else’s money, with the city merchant at the head of the chain as ultimate creditor.

This structure had several consequences that are of interest to a lawyer and a banker. First, the merchant’s balance sheet consisted largely of claims: claims on rural producers for material advanced and not yet returned, claims on foreign buyers for goods delivered and not yet paid, and claims on correspondents for bills in circulation. Managing those claims, assessing the creditworthiness of hundreds of counterparties and enforcing payment through the courts of the city and the bailiwicks were core skills of the Zurich merchant. Secondly, because the merchant was also the buyer of the product, he could set off his claims against the price of the goods delivered. The putting-out relationship was therefore in legal substance a combination of sale, loan and contract for work, secured by the merchant’s ownership of the material. Thirdly, the rural entrepreneur, the Tüchler, was himself a borrower and a lender at the same time, whose solvency depended on that of the spinners and weavers below him. A crisis at any link could propagate along the chain.

Pfister described the origins of the Zurich cotton Verlag precisely as a set of credit relationships between merchants and the small producers of cloth.² From the late seventeenth century, rural intermediaries increasingly took over functions that urban intermediaries had previously performed.³ These rural entrepreneurs accumulated modest capital of their own, built larger houses, lent to their neighbours and formed a village elite of manufacturers and traders. They were the social group that would demand, in 1794–95, the freedom to trade on their own account, and after 1830 they became the founders of rural spinning mills and weaving firms.

Credit to the countryside beyond textiles

City capital also reached the countryside through channels outside the textile chain. The traditional instrument of rural credit in Zurich was the Gült or Schuldbrief, a rent charge secured on land, whose legal forms and the ceiling on interest established by the Reformation are described in Part A and Chapter B.III. City institutions placed much of their capital in such loans to the countryside. Around the middle of the eighteenth century the Saffran guild, for example, owned assets of 160,000 gulden, of which some 100,000 gulden were interest-bearing capital lent out above all in the countryside.⁴ The guilds of the city invested their own funds in the same way. Otto Sigg has noted that the Saffran guild, the guild of the merchants and grocers, held some 160,000 gulden by the middle of the eighteenth century, invested mainly in interest-bearing capital secured on rural land.⁵

Merchant fortunes flowed into the same assets. A merchant who had made money in silk or cotton could place it in rural mortgages at the customary rate, lend it to the city’s public offices or to other burghers, buy a lordship in the countryside or, increasingly in the eighteenth century, invest it abroad. The Werdmüller acquired the castle and lordship of Elgg in 1715 as an entailed family estate. Salomon Hess, who had grown rich in the silk trade, acquired the jurisdiction of Nürensdorf in 1735.⁶ The Landolt family, which rose in state and military service at the end of the seventeenth century, derived its income by the early eighteenth century primarily from rents and property yields.⁷ In this way the capital accumulated in trade was recycled into the landed and rentier economy of the ancien régime, until the city had become, in its entirety, a creditor of its own countryside.

Family funds and the permanence of capital

A distinctive Zurich institution of this period was the family fund, the Familienfonds or Familienkiste, a pool of capital set aside by a family to support members in need, to finance education and to preserve the family’s standing across generations. The Hess family established such a fund in 1650 that continues today. The Pestalozzi created one in 1750 expressly to prevent the economic decline of family members.⁸ Such funds were early instruments of collective asset management. They required statutes, trustees, accounts and an investment policy. The claims they created for beneficiaries were enforceable within the family and, in case of dispute, before the city’s courts. By these means the funds bound the family’s capital to the city for centuries.

For the practitioner of today, the family funds of the Zurich patriciate are a recognisable ancestor of the family foundation and of the private trust company. Swiss law, since the Civil Code of 1907, allows family foundations only for limited purposes such as education, endowment and support of family members. The Zurich practice of the ancien régime is part of the background to that restriction.⁹ The funds also show a mentality: the conviction that capital accumulated by one generation should be managed prudently for later ones, and that a family’s reputation depended on no member falling into poverty. That conviction is close to the self-understanding of Zurich’s private banks and wealth managers.

Notes

1. Stadt Uster, “Die industrielle Revolution” (cited above), on looms and spinning wheels acquired on credit; HLS, Pfister, “Verlagssystem” (cited above), on the credit relationship between merchants and Tüchler. ↩
2. HLS, Pfister, “Verlagssystem” (cited above). ↩
3. HLS, Tanner, “Baumwolle” (cited above), on the displacement of urban intermediaries by rural entrepreneurs after about 1670; Doswald, Fischer-Karrer and Thalmann Stammbach, “Die Industrielandschaft Zürcher Oberland” (cited above), on the appearance of rural intermediaries in the late seventeenth century. ↩
4. Sigg, “Zunftherrlichkeit” (cited above): “Die Zunft zur Saffran … nannte um die Mitte des 18. Jahrhunderts ein Vermögen von 160’000 Gulden ihr eigen”, including “100’168 Gulden an Zins tragenden Kapitalien, angelegt vor allem auf der Landschaft”. ↩
5. Otto Sigg, “Zunftherrlichkeit: die Zürcher Zünfte 1336 bis 1798” (1986), https://www.zuerich-geschichte.info/pdfs/Zunftherrlichkeit.pdf. ↩
6. HLS, “Werdmüller”, https://hls-dhs-dss.ch/de/articles/023853/; HLS, “Hess (ZH)”, version of 13 December 2007, https://hls-dhs-dss.ch/de/articles/023799/2007-12-13/. ↩
7. HLS, “Landolt (ZH)”, version of 14 November 2007, https://hls-dhs-dss.ch/de/articles/023816/2007-11-14/. ↩
8. HLS, “Hess (ZH)” (cited above); HLS, “Pestalozzi (ZH)” (cited above). ↩
9. Article 335(1) of the Swiss Civil Code (ZGB), https://www.droit-bilingue.ch/rs/lex/1907/00/19070042-a335-de-fr.html, allows a family foundation “zur Bestreitung der Kosten der Erziehung, Ausstattung oder Unterstützung von Familienangehörigen oder zu ähnlichen Zwecken”. Art. 335(2) prohibits new family fideicommissa. The connection drawn here to the older Zurich family funds is an interpretation by the author. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.